Understanding Taxes on Crypto Gains
Cryptocurrency is a relatively new institution that has been a challenge in the world of finance. People, including governments, have been trying to figure it out since its introduction (what is DeFi finance).
However, that hasn’t stopped its growth and functioning. While you are busy trying to decide whether or not to invest in crypto, different types of cryptocurrencies are being created and introduced every day.
Crypto taxes are paid when you receive capital gains from investing, purchasing goods and services, and earning an income through digital currencies.
Paying taxes on crypto gains USA means that you have made profits on crypto assets you bought and are using by either selling, making purchases, or trading them for personal gain.
✅ Yes. If you are earning an income from mining Bitcoin, you should report it for taxation.
✅ Yes. When you have successfully mined crypto and got rewarded, you must do a tax report on it as gross income, as the IRS can track crypto activities.
There are many profitable cryptocurrencies, and there is more information and comparisons on this site.
Some governments have banned it, and others are still unsure, while the rest are finding ways to gain from it (read this – best crypto friendly banks).
Though governments worldwide haven’t figured out a way to completely regulate digital currencies, they have found a way to ensure that people do not use them for tax evasion. Governments around the world are now imposing taxes on crypto gains. How are they doing that?
This piece discusses how and why different countries, primarily focusing on the US, are imposing taxes on cryptocurrencies. We will thoroughly explain how this works so that you don’t find yourself in trouble for tax evasion one day.
If you are an investor, know that the IRS wants a piece of those capital gains crypto is making for you.
Taxes on Crypto Gains in Different Countries
This may come as a surprise to you, but crypto is taxed in a substantial number of countries around the world. If you are planning to or are already investing in cryptocurrency and haven’t paid taxes on crypto gains, you must check out where your country stands on crypto gains tax and crypto mining tax (read this – best crypto mining platforms).
If you don’t, there is a chance of getting in trouble for non-compliance with crypto taxation. Some countries where capital gains crypto are imposed include the USA, Australia, the UK, Canada, Germany, Singapore, Malaysia, Portugal, Iran, South Korea, Kenya, Hong Kong, Spain, Italy, India, and more.
In some countries mentioned above, the tax rate on crypto gains and related regulations have not yet been finalized. Below are four countries we are certain to have begun imposing taxation on digital currencies and how they are doing it.
The IRS doesn’t recognize crypto as a currency but as an asset. That is how the US tax on cryptocurrency gains came about.
This means that investing in crypto is treated the same way as owning an asset like stock and gold, for instance. Hence the crypto gain tax rate ranges from zero to 37%. You will be charged tax for:
- Selling your crypto assets
- Using digital currency to purchase goods and services
- Trading cryptocurrencies
- Receiving your mining crypto reward
- Receiving crypto remuneration from the employer
- Receiving crypto prizes
You will not be taxed for:
- Buying crypto with fiat currency and storing it
- Moving your crypto assets from one wallet to another
- Donating digital currency to a charity organization that is recognized as tax-exempt
Short term capital gains crypto and long term crypto Germany are not as hectic as in countries like the US. You can enjoy investing in digital currencies without having to share a piece of your gains with the government and without breaking the law.
Instead of a capital asset, cryptocurrency in Germany is recognized as private money. That means a crypto tax is charged when you:
- Use (sell, swap, or spend) your crypto after holding it for less than a year with a profit above $600
- Stake your crypto to earn more profit
- Get payment in crypto
- Mine digital currency
- Sell your staked crypto within ten years
There will be no taxes posed if you:
- Hold your digital currency assets for more than a year before using them
- Use your crypto in less than a year while your profits are less than $600
- Stake your crypto after holding it for more than ten years
After repeatedly voicing out their argument against cryptocurrencies, the Indian government made a statement about charging capital gains tax rate cryptocurrency at the beginning of 2022. Not only is this confusing for crypto enthusiasts, but they are also upset about the high tax percentage on crypto gains.
Crypto investors in India are not sure whether the government will eventually ban digital currency, but in the meantime, they must pay taxes of up to 30% on their profits. You will be taxed when:
- You receive income in the form of digital currency
- Receiving crypto gifts
- Profiting from crypto
Canada also recognizes digital currency as an asset. Therefore taxes on crypto gains are posed. Tax is charged on 50% of your gains. Crypto income, on the other hand, is fully taxable. To break it down, you will be taxed if you:
- Earn profits through crypto
- Exchange digital assets
- Convert crypto to fiat currency
- Pay for goods and services through crypto
- Earn an income in the form of crypto
You don’t pay tax when:
- Buying crypto with fiat currency
- Storing crypto
Crypto Capital Gains Tax in USA 2022
In the US, tax rates for crypto gains depend on your income, how long you’ve owned your crypto assets before selling, and your tax filing status.
A short term crypto tax rate is posed when you have owned your crypto assets for one year or less. Then long term crypto tax rates apply when you’ve owned your crypto assets for more than 365 days.
Crypto short term capital gains are taxed like regular income. Crypto long term capital gains, however, have a lower tax rate. Due to inflation, the IRS adjusted the capital gains tax rate crypto investors have to pay for 2022.
Below is how taxes for short term capital gains on crypto look like for different individuals:
|Tax Rate||Single Person||Married & Filing Jointly||Head of Household|
|37%||Above $539,900||Above $647,850||Above $539,900|
Long term capital gains tax on cryptocurrency has lower rates and straightforward:
|Tax Rate||Single Person||Married & Filing Jointly||Head of Household|
|20%||Over $459,750||Over $517,200||Over $488,500|
How to Know if You Owe Capital Gains Tax Crypto
Taxes on crypto gains mean that you’ll have to pay tax when your crypto value increases from what it was when you bought it and are spending it.
The capital gains tax for crypto is posed because you are either selling your assets for real money, using them to make purchases, or exchanging them.
Remember that capital gains taxes on cryptocurrency, in the events mentioned above, are charged only if the value of your assets has accumulated from the original value.
For instance, if you have bought crypto coins for $5,000 and when you sell them, they are worth $15,000, you have to report $10,000 crypto tax gains.
The same goes if you later purchase $25,000 in goods; you’ll report $20,000 gains. Also, when you exchange your crypto coins for different ones worth more, for example, $20,000, you’ll report $25,000 capital gains.
Keep track of these records to know how much you need to report and pay on tax for crypto gains. The gains must be reported in US dollars when you make crypto exchanges on a trading platform, doesn’t matter it is crypto for short term gain or long term.
Tax Rate on Crypto Gains and How to Report it
Crypto income is taxed the same as regular income and therefore taxed accordingly. Examples of what is considered crypto income include getting paid in crypto, earning crypto rewards because of mining or staking it, and earning interest for lending your crypto to others. You must calculate crypto gains tax on these and report it for the year.
To report income taxes on crypto gains in the USA, you are required to fill out Form 8949. Essential details required include:
- The cryptocurrency acquired (i.e., Bitcoin, Ethereum, Litecoin, or other)
- The date you obtained it
- The date you disposed of it
- How much you’ve sold or traded it for
- Its original value
- How much you’ve gained or lost
Non-Taxable Crypto Events
Non-taxable events usually apply to crypto unrealized gains. This means that you have your crypto but haven’t necessarily used it. Sometimes you have used it, but taxes on crypto gains can’t be applied because you haven’t gained anything.
So, for as long as you fall under the non-taxable crypto events, you’ll receive crypto unrealized gains tax, which is zero. This asks the question; when are you not taxed for digital currency in the US?
When you buy crypto with cash and store it. Keeping your crypto, whether for long or short term capital gains crypto tax isn’t applied. Crypto tax capital gains will only apply when the coins leave your wallet, and you gain from them.
When you donate your cryptocurrency assets to a tax-exempt non-profit organization, you won’t pay taxes on it. You can also apply for charitable deductions to reduce your income taxes on crypto gains.
When someone gifts you a digital currency, capital gain tax on crypto is not posed on it until you use that gift and gain from it.
You aren’t taxed when you give crypto away as a gift to someone else. If the amount exceeds $15,000, you have to apply for a gift tax return, so you don’t have a current tax liability.
When you are moving your crypto from one of your wallets to another. You don’t have to pay taxes but remember to record the dates and cost so that when you finally sell and need to report taxes on crypto gains.
Short Term vs Long Term Capital Gains
Regarding long term and short term profit cryptocurrency, the period you’ve held your coins matters in relation to taxes. This means that the crypto capital gains tax is affected by how long you’ve had your assets before using them for capital gains.
The short term capital gains tax on crypto is applied when you use your assets for gains after you’ve stored them for less than one year. Then the long term capital gains tax crypto is posed when you use your coins after you’ve stored them for over a year.
What does this mean for your tax rates? Short term capital gains tax crypto are the same rate as those on regular income tax.
This makes them higher than long term tax rates on crypto gains. Short term capital gains tax cryptocurrency rates are 10-37%, while long term taxes are 0-20%. If anything, this encourages you to have your assets stored for a more extended period to pay less taxes.
Governments worldwide are trying to find ways to regulate cryptocurrencies, and one step most countries have successfully taken is posing taxes on crypto gains.
Capital gains crypto tax is especially more severe and clearly stated in countries like the USA, Germany, and Canada. There are events in which crypto taxes are charged and not charged.
A simple way to distinguish between the two is that your crypto gains are realized with the former, while with the latter, they aren’t realized.
They help you determine whether or not you owe tax on cryptocurrency gains, USA. For instance, with crypto mining taxes are charged when you earn an income from it.
Then the rates you can determine by determining after how long you disposed of your digital capital gains tax rate cryptocurrency.
Of course, short term capital gain crypto tax rates are higher than long term capital gains crypto. When you understand capital gains tax crypto, it becomes easier to use it to your advantage.